Coal Insights, October 2021

CONTENTS 14 Seaborne thermal coal offers surge in October 15 Coking coal offers remain range bound in October 16 India’s August coal imports down 7% m-o-m 17 CIL’s coal production up marginally in September 18 SCCL’s coal production up 36% in September 27 Steel Ministry calls for coal gasification ecosystem 28 MBED to cut down reliance on PPAs from April 30 Slow progress by power sector on FGD rollout 34 Joshi chairs meeting on Jharia Coalfield Master Plan 35 Energy transition to be risky, volatile: IEA 39 September sponge iron output down y-o-y, m-o-m 40 No power capacity addition in August 42 Coal handled by major ports up 31% till September 43 Indian Railways’ coal handling up 29% in H1 46 Indonesian energy companies join national Net Zero plan 47 Global miners reap profits from high coal prices 49 US coal production estimated at 588 MMst in 2021 50 CIL should create daylight conditions in its mines with stadium lighting 53 NTPC to import 2 million tons of coal in 4 months 54 Corporate update 56 Government update 58 E-auction data 60 Port data

4 Coal Insights, October 2021

6 | COVER STORY

“Ready to serve expanding coal market, commercial miners” CMD Manoj Kumar shares strategies to reinvent CMPDI in a liberalised era.

19 | FEATURE Coal crunch: Anatomy of a crisis Inefficient logistics, poor planning triggered shortage.

25 | FEATURE Coal Ministry launches auction of 88 mines New provision introduced for sustainable mining.

44 | INTERNATIONAL

China restarts coal mines, frees tariffs to solve power crisis Resumes operations of flood-affected mines.

52 | CORPORATE

Coal India’s aluminium foray to cash in on fuel leverage Private players eyeing coal security.

COVER STORY

“CMPDI ready to serve expanding coal market, commercial miners”

6 Coal Insights, October 2021

COVER STORY

T

he Central Mine Planning & Design Institute Ltd (CMPDI) was set up as a subsidiary of Coal India (CIL) with four regional institutes at Asansol, Dhanbad, Ranchi and Nagpur in the 1970s and emerged as the nodal agency for coordinating and monitoring R&D activities in the coal sector. Over the years, CMPDI’s importance in resource-rich India went up and the organisation handled major projects like capturing coal resource data of the country in digital form, setting up guidelines for preparation of mine closure, monitoring of land use in opencast mines by remote sensing, exploratory drilling, preparing assessment reports prepared for delineation of CBM blocks, implementing an UNDP-funded CBM/CMM recovery and utilisation demonstration project, among others. Manoj Kumar, Chairman-cum-Managing Director (CMD) of CMPDIL is a mining engineer with distinction from IT-BHU who has been serving the coal industry for more than three decades. In a free-wheeling interview with Arindam Bandyopadhyay of Coal Insights, Kumar spoke about how CMPDI is reinventing itself in a liberalised environment and expanding its horizon while taking on the new challenges

The coal sector in India is undergoing unprecedented changes with the launch of commercial mining. How is CMPDI coping up with these changes to retain its pride of place as the exploration-cum-R&D backbone of Coal India?

We at CMPDI are deeply committed to make it a dynamic organisation and evolve as per the changing energy scenario in the country. We are also committed to maintain operational excellence and fulfill CMPDI’s mission to cater competitively to the country’s energy needs, by rendering in-house consultancy services to Coal India and its subsidiaries in the areas of coal exploration, mine planning and design, environment engineering, coal beneficiation and utilisation, allied engineering services, information and communication technology, human resource development, remote sensing, field services, etc.

Furthermore, similar services are also being provided to clients other than Coal India. Planning and allied services are being provided to some extent in metal mining sector as well.

Presently, CMPDI provides its services to clients other than Coal India and Ministry of Coal clientele through a commercial agreement. The same services can be extended to new players coming into

commercial mining without any conflict of interest. I have already instructed my team to be ready to serve the expanding market. They are indeed ready to serve the business prospects and explore the spheres of collaboration that we can have with the commercial mining bid-winners. In fact, we are already doing some work with them in the areas of block boundary certification and mine planning.

Looking at India’s energy scenario, the installed coal-based generation capacity is expected to grow to 330-450 GW by 2040.

This is likely to translate into a coal demand of 1.1-1.5 billion tons (bt) per annum.

The known levels of proven thermal coal reserves – about 143 bt as of March 2020, as per Geological Survey of India (GSI) – may only be able to support an annual peak production of 1.0-1.5 bt for about next 12-18 years, with a gradual decrease thereafter.

This fact calls for intensifying exploration to enhance the proven coal reserves.

GSI (for regional exploration) and CMPDI (for detail exploration) are responsible for exploration of coal in India.

There is a need to synergise the efforts of all these agencies to undertake 100 percent resource mapping of coal.

At present, coal production in India is around 720 million tons (mt) with major contribution from the country’s largest coal producing company, Coal India Ltd. CIL produces around 600 mt, about 80 percent of total production of coal in the country.

India has been importing coal to the tune of about 250 mt to meet its thermal as well as coking coal demand. With the increase in coal prices in the international market, the onus of meeting the domestic requirement from domestic sources has tremendously increased, as is being seen lately. Minimising the import of coal is a major challenge. In this context, CMPDI has an important role to play in detail exploration of coal in the remaining regionally explored areas as well as the prognosticated coal bearing areas in the country.

CMPDI is making progress in accelerated exploration of coal with the implementation of 2D/3D seismic survey, using R&D efforts to improve bit performances. Improving drilling technology will enhance the existing capacity/performance of exploration activities of CMPDI to cope up with the rising coal demand in the country.

At a time when CIL is diversifying into new areas, i.e. aluminium and solar

Coal Insights, October 2021

7

FEATURE

Coal crunch: Anatomy of a crisis Sumit Maitra

H

eavy rains in August – September period, steep hike in power demand due to economic recovery concurrent with sharp rise in prices of imported coal as well as natural gas required to run power plants have all conspired to create a temporary energy crisis in the country.

Delayed payments to power producers, mounting dues payable to Coal India, long dry spells impacting hydro power generation, and maintenance shutdowns at nuclear plants also contributed to the crisis.

The average stock of coal in power plants fell to just four days on October 3.

As of that day, total number of rakes dispatched was a low 248.

Both these parameters have improved since then.

But the current coal crisis is not about lower coal production or sudden jump in power demand.

It’s a structural issue caused by inefficient logistics and poor planning by the power sector. Every time there is a seasonal dip in power demand, generating plants start lowering their stockpile of coal forcing Coal India to either cut back on supplies or concentrate on overburden removal.

Inefficient logistics means supplies can’t be ramped up soon enough.

Let’s take a deep dive into the hidden causes and possible solutions to the crisis.

Maintenance of low stocks at power plants

The crisis, in a major way, was triggered by the unwillingness of the power plants to stock adequate stock despite a sharp rise in demand for power following the reopening of the

Coal Minister Pralhad Joshi visiting Ashoka mines of Central Coalfields to encourage raising coal production to meet power demand.

“Coal demand from power sector increased with easing of Covid cases. Power producers should have anticipated this increase and should have kept adequate inventory. This would have helped Coal India to continue producing in Q1 of FY22.”

Centrum Broking Research economy and resumption in the operations of industrial units.

By FY21-end, Coal India had about 100 mt of coal inventory as against 78 mt at March 2020-end as power producers refrained from taking adequate coal, keeping their inventory at low levels in anticipation of lower power demand amid increasing Covid cases.

This led Coal India to produce less in Q1 of FY22 which was only 2.5 percent higher y-o-y on a low base.

Coal India had little option as the power plants kept lowering their stocks in anticipation of continuation of subdued demand impacted by the pandemic.

Expectation of a third wave of the infection didn’t help in boosting the sentiment.

Then came the sharp demand revival.

With rising demand, Coal India started producing more from July, but was hit by heavy rains in September, which affected production and offtake.

“Coal demand from power sector

Coal Insights, October 2021

19

FEATURE

Coal Ministry launches auction of 88 mines

Union Minister of Coal, Mines & Parliamentary Affairs, Pralhad Joshi and Minister of State for Coal, Mines & Railways, Raosaheb Patel Danve launching 3rd tranche of auction for commercial mining of coal.

Coal Insights Bureau

A

fter successful auction of 28 coal mines in the first two tranches, Ministry of Coal has launched the auction process of 40 new coal mines (21 new mines under CM(SP) Act and 19 new mines under the Tranche 3 of MMDR Act).

With coal mines rolling over from previous tranche, there shall be a total of 88 coal mines on offer, according to an official release.

Total geological resources of about 55 billion tons (bt) of coal are on offer from these 88 mines, of which 57 are fully explored mines and 31 are partially explored mines. There are 4 coking coal mines on offer. Mines are spread across 10 coal-bearing states of Jharkhand, Chhattisgarh, Odisha, Madhya Pradesh, Maharashtra, West Bengal, Andhra Pradesh, Telangana, Arunachal Pradesh and Assam.

From this tranche onwards, Ministry

of Coal has introduced provisions in the Agreement related to (i) Sustainable mining operations, including mine closure; (ii) Mechanised evacuation of coal; and (iii) Surrender of coal mine by successful bidder upon encountering difficult mining conditions.

The list of mines has been finalis0ed post detailed deliberations and mines falling under protected areas, wildlife sanctuaries, critical habitats, having forest cover greater than 40 percent, heavily built-up area etc. have been excluded.

Key features of auction process include introduction of National Coal Index, ease in participation with no restriction for prior coal mining experience, full flexibility in coal utilisation, optimized payment structures,

efficiency promotion through incentives for early production and use of clean coal technology. Further incentives are being contemplated by the Ministry of Coal with focus on sustainability.

A total of 88 coal mines with cumulative PRC of 282 mt are on offer of which 35 coal mines are under 13th Tranche of auction under CMSP Act and 53 coal mines are under 3rd Tranche of auction under MMDR Act. Out of these 88 coal mines, 40 are new coal mines whereas the remaining 48 coal mines are roll over mines from the earlier round of auctions. The mines on offer are having 57 fully explored while 31 partially explored coal mines.

The list also includes 4 coking coal mines.

These mines will help in generating around `29,240 crore of annual revenue at PRC. It will also facilitate a capital investment of around `42,304 crore for operationalising the coal mines and will provide employment to around 3.81 lakh people.

Union Minister of Coal, Mines & Parliamentary Affairs, Pralhad Joshi threw light on the energy consumption pattern of the country and how the demand of power has increased by around 20 percent compared to pre-Covid times. The minister also announced that the earlier rebate of 20 percent on the final offer on sale or consumption of coal for coal gasification / liquefaction, may be increased. The minister also informed that discussions are in progress for incentives for the coking coal blocks. These steps will help in increasing the participation of prospective bidders.

SBI Capital Markets, sole Transaction Advisor to Ministry of Coal for the commercial coal mine auction, had devised the methodology and is assisting the Ministry of Coal in conduct of the auction.

Sustainable mining and mechanised operations

Successful bidder shall implement mechanised coal extraction, transport and evacuation in the Coal Mine, in line with modern and prevalent technologies. The

Coal Insights, October 2021

25

FEATURE

Energy transition to be risky, volatile: IEA

“For all the advances being made by renewables and electric mobility, 2021 is seeing a large rebound in coal and oil use. Largely for this reason, it is also seeing the secondlargest annual increase in CO2 emissions in history.”

Coal phase-out strategy needs to address economic fallout

Coal Insights Bureau

E

nergy transitions have to be secure, affordable and fair to all citizens, and if governments do not ensure that these key elements are at the core of their policymaking for the transformation of their energy sectors, then they risk failure, International Energy Agency has said in its World Energy Outlook 2021.

IEA’s comment comes on the back of a sharp rise in prices of natural gas, coal and electricity to all-time highs in many regions, which IEA said, has been triggered by rapid economic rebound from last year’s pandemicinduced recession, weather-related factors, and some planned and unplanned outages on the supply side.

“For all the advances being made by renewables and electric mobility, 2021 is seeing a large rebound in coal and oil use.

Largely for this reason, it is also seeing the second-largest annual increase in CO2 emissions in history. Public spending on sustainable energy in economic recovery packages has only mobilised around one-

third of the investment required to jolt the energy system onto a new set of rails, with the largest shortfall in developing economies that continue to face a pressing public health crisis,” IEA said in its report.

Risk to climate pledge implementation

In the run-up to COP26, many countries have put new commitments on the table, detailing their contributions to the global effort to reach climate goals; more than 50 countries, as well as the entire European Union, have pledged to meet Net Zero emissions targets. If these are implemented in time and in full, they start to bend the global emissions curve down.

But achieving these pledges in full and on time cannot be taken for granted A lot more needs to be done by governments to fully deliver on their announced pledges.

Looking sector-by-sector at what measures governments have actually put in place, as well as specific policy initiatives that are under development, reveals a different picture, say IEA.

Strategies to phase out coal have to effectively deal with impacts on jobs and electricity security, says IEA. Reducing coal consumption leading to achieving Net Zero would come from four types of efforts: halting the approval of new, unabated coal plants; reducing emissions from the 2100 GW of operating plants, which produced more than one-third of the world’s electricity in 2020; investing at sufficient scale to reliably meet the demand that would otherwise have been met by coal, and managing the economic and social consequences of change.

Delivering emissions reductions from the existing fleet of coal-fired plants is an even more crucial component of climate action, but a much trickier challenge for public policy, says IEA. “Given the dependence of a number of countries and regions on coal, the closure or repurposing of coal mines and power plants could have significant economic and social consequences,” says the report.

Coal-dependent regions are often highly specialised ‘mono-industry’ areas, where the economy and the local identity are closely tied

Coal Insights, October 2021

35

INTERNATIONAL

China restarts coal mines, frees tariffs to solve power crisis

“We will resume the production of coal mines affected by floods as soon as possible. The coal shortage is a shortterm problem and we can solve it. We will also increase coal imports.”

Yao Jingyuan, Researcher, Counsellors’ Office of the State Council Talking down prices

Coal Insights Bureau

C

hina is taking steps to raise coal supplies and address structural issues in the power sector as the country is set to face rising energy demand for winter heating in its northern provinces.

“We will resume the production of coal mines affected by floods as soon as possible.

The coal shortage is a short-term problem and we can solve it,” said Yao Jingyuan, special researcher of the Counselors’ Office of the State Council during a briefing on national economic performance of first three quarters of 2021.

National Bureau of Statistics’ data showed that China’s power generation in September grew 4.9 percent year-on-year (y-o-y) compared with same month of 2020 and 4.7 percentage more than August generation.

According to officials, coal prices rose due to the decline in coal production, which in turn led to losses in power generation,

44 Coal Insights, October 2021

followed by decrease in power supply. This, they admitted, led to power rationing in some provinces.

The recent floods in Shanxi province forced 60 local coal mines to stop production, and the coal output dropped sharply.

However, a total of 72 coal companies in Inner Mongolia have restarted production which will boost output.

Chinese Premier Li Keqiang recently talked to Mongolian Prime Minister via video link to further promote the coal trading between the two countries, the officials said.

“There have been circumstantial disruptions. For example, China has seen a recent Covid-19 resurgence caused by the Delta variant, which has disrupted regular economic operations. In addition, the recent power shortages in the country have also posed challenges to economic development,” an opinion piece on China.org said while commenting on data on China’s Gross Domestic Product (GDP) numbers for the first three quarters of 2021.

Chinese coal prices have cooled down a bit after National Development and Reform Commission (NDRC) officials on October 21 commented that coal prices are at irrational levels and that it would use all necessary steps provided by pricing laws to bring coal prices back to an ‘appropriate range’ and ensure a ‘secure and stable energy supply’.

Following the comment, coal prices corrected with the most-traded contract for January delivery on Zhengzhou Commodity Exchange dropped 14 percent to $220 a ton for the week ended October 22.

Imports jump 76%

The country imported 32.88 mt of coal in September, up 76 percent year on year.

During January-September period, China imported 230.4 mt of coal, 3.6 percent lower than same period of 2020. “We will also increase coal imports,” Yao Jingyuan said.

Drop in coal output

In September, China’s raw coal output fell 1 percent y-o-y to 330 million tons, according

CORPORATE

Coal India’s aluminium foray to cash in on fuel leverage Coal Insights Bureau

B

auxite and coal are the key inputs for aluminium production in India.

And at a time when rising competing needs for coal is driving up its prices to the stratosphere, Coal India appears to have made a smart move to get into producing the metal known for its flexibility and lightweight.

Coal India (CIL) in its recent board meeting has accorded its in-principle approval to a feasibility report for setting up of integrated greenfield aluminium project in Odisha which shall include bauxite mining, alumina refinery, smelter and associated captive power plant.

The project would be executed by its wholly-owned subsidiary Mahanadi coalfields Ltd and National Aluminum Co Ltd at an investment of `23,363 crore.

The CIL has planned a diversification programme, under which such an initiative

52 Coal Insights, October 2021

is being undertaken to reduce its dependency on customers in an emerging competitive market and have captive coal consuming projects.

The project envisages 3 million tons (mt) of bauxite mining, 1 mt alumina project, a 0.5 mt aluminum project and a 1,600 MW captive thermal power plant.

While CIL and Nalco will jointly set up the smelter at an investment of `12,000 crore, CIL will invest `11,363 crore in the power plant.

A special purpose vehicle (SPV) is to be promoted by the CIL. The SPV would be offloaded after reaching a critical phase and a bid may be on an ultra-mega power project (UMPP) model in which the CIL would have 26 percent equity stake.

Importance of cheap coal for aluminium project

Indian aluminium makers like Hindalco

Industries and Vedanta Ltd mostly use power generated from captive power plants which sources coal from their captive coal mines and also from CIL and from imports.

But as coal prices continue to rise, investing in aluminium projects is turning increasingly risky.

“The coal prices outlook over the next 5 to 10 years does not give us a good rate of return for a smelter expansion,” Aditya Birla group-owned Hindalco Industries had earlier told investors.

In a situation of abundant coal supplies, Hindalco’s sourcing of coal from linkages with CIL crosses 90 percent which brings down its power costs.

But when coal supplies from CIL are not adequate, Hindalco has to source coal from the open market, be it e-auctions or imports, costs of production goes up.

To remain competitive within and outside the country, cost of power for Hindalco needs to be `2.8 to `3 per kilowatt hour.

In contrast, several industries including aluminium producers had to source electricity from power exchanges at 5-6 times that rate.

Aluminium makers eye coal security

Vedanta Ltd is spending around `3,000 crores for operationalization of all its coal blocks to become 100 percent dependent upon own source of coal.

As for its Kuraloi coal block, which the company has won, the potential cost of the coal is around 40 paise to 43 paise per GCV compared to our existing cost of 74 paise- 75 paise.

“The operationalisation of our coal blocks, Jamkhani, Radhikapur and Kuraloi north will be one of our key focuses in high priority areas as this will ensure almost 100 percent of the coal security for the business with the potential to bring down coal cost by around 30 percent to 35 percent,” Vedanta officials has told investors.

Hindalco expects to operationalise its Chakla coal mine in the next two-three years.

“This will assure coal security at a lower cost.

With modern equipment in place, we expect this to reduce the overall blended cost of coal,” Hindalco officials told investors.

62 Coal Insights, October 2021